Analysts predict that if inflation remains moderate, below the 5% target, the monetary policy committee of the Bank of Mozambique can continue and implement another cut of 0.5 percentage points at the end of November. This follows the central bank’s decision at the end of September to reduce the reference rate from 10.25% to 9.75%.
The reference interest rate is used by the central bank to lend to banks, typically slightly below the rate at which banks offer loans to individual and business clients.
“With an inflation rate of 4.8% in August, inflation remains below the central bank’s implicit target of 5%. While no official inflation target has been set, the aim was to keep the rate of price increase between 2% and 8% as part of the recent International Monetary Fund (IMF) program that concluded in April,” analysts explain. They note this marks the 11th rate cut since last year, amounting to an accumulated reduction of 7.5 percentage points in nearly two years.
The Monetary Policy Committee (CPMO) of the Bank of Mozambique reduced the MIMO monetary policy interest rate by 0.50 percentage points to 9.75% on September 29, announced the governor, Rogério Zandamela.
“This measure essentially results from maintaining inflation outlooks in single digits over the medium term, reflecting partly the stability of the exchange rate and favorable trends in international commodity prices, despite the high domestic risks and uncertainties associated with projections,” the governor said at a press conference in Maputo after the CPMO meeting, held every two months.
The benchmark interest rate in Mozambique had been set at 17.25% since September 2022, following central bank intervention, which then began consecutive cuts starting January 31, 2024, reducing it to 16.5%.
In March last year, the Bank of Mozambique reduced it to 15.75%, in May to 15%, in July to 14.25%, in September to 13.5%, in November to 12.75%, in January this year to 12.25%, and in March to 11.75%, followed by another cut in May to 11.00%, in July to 10.25%, and in September to 9.75%.
“The CPMO will continue the process of normalizing the minimum rate over the medium term, but in increasingly modest magnitudes,” noted the governor. “The pace and magnitude will continue to depend on inflation outlooks, as well as the assessment of risks and uncertainties underlying medium-term projections.”
The governor recalled that this “normalization process” began at the start of 2024, with an initially estimated timeframe, now realized, of “24 to 36 months,” ultimately “benefiting” families, businesses, and the government by accumulating a 700-basis point reduction.
